Operations Management
Exam Materials
Course Introduction
Operations Management explores the design, execution, and improvement of processes involved in producing goods and delivering services. This course covers key concepts such as process analysis, capacity planning, supply chain management, quality control, inventory systems, and lean operations. Students learn to apply analytical and quantitative tools to enhance efficiency, reduce costs, and improve overall organizational performance. By integrating theoretical frameworks with real-world case studies, the course equips students with the skills necessary to optimize operations in various industries, ultimately contributing to strategic decision-making and competitive advantage.
Recommended Textbook
Managerial Economics Theory Applications and Cases 8th Edition by W. Bruce Allen
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19 Chapters
693 Verified Questions
693 Flashcards
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) The market supply curve shows the quantity of a good or service that ,holding other possible influences constant.
A) households would sell at various prices
B) households would buy at various outputs
C) firms would sell at various prices
D) firms would buy at various prices
E) households would buy at various prices
Answer: C
Q2) The difference between accounting and economic profit is:
A) caused by confusion over tax laws.
B) the value of owned resources in their next best alternative use.
C) the result of superior training received by accountants.
D) proportionately very small for owner-managed firms.
E) a decreasing function of interest rates.
Answer: B
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Chapter 2: Demand Theory
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Sample Questions
Q1) The demand curve's usual slope implies that consumers:
A) buy more as the price of a good is increased.
B) buy more as a good is advertised more.
C) buy more at higher average incomes.
D) buy less as the price of a good is increased.
E) have tastes that sometimes change.
Answer: D
Q2) Suppose that the demand curve for compact disks is given by P = 600 - Q and that the supply curve is given by P = 0.5Q,where Q is the quantity of compact disks and P is their price.What is the price elasticity of demand at the equilibrium price and quantity?
A) -0.05.
B) -0.02.
C) -0.20.
D) -0.50.
E) -2.00.
Answer: D
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4
Chapter 3: Consumer Behavior and Rational Choice
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Sample Questions
Q1) Suppose Al is currently consuming five movies and two concerts per month.If his utility function is given by U = 15MC,where M represents the number of movies seen and C represents the number of concerts attended,Al's total utility is equal to:
A) 10.
B) 15.
C) 30.
D) 75.
E) 150.
Answer: E
Q2) A corner solution to a consumer choice problem suggests that:
A) the consumer is not rational.
B) one product is not purchased at all.
C) both products are preferred, but one at a lower rate than the other.
D) neither product is a normal good.
E) all of the above
Answer: B
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Chapter 4: Estimating Demand Functions
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Sample Questions
Q1) A cost of estimating demand functions particular to the use of market experiments is:
A) the possibility that customers may be lost and profits cut as a result of the experiment.
B) the shipping costs to markets across the country.
C) the need to determine the profit-maximizing discount.
D) the cost of collecting data.
E) none of the above.
Q2) If an analyst were confident that all factors that shift the supply curve were constant when observing changing prices and quantities traded:
A) the analyst would be confident that the demand curve had been identified.
B) neither the supply nor the demand curve would have been identified.
C) the analyst should gather more data to find shifts in both curves.
D) both the supply and demand curves would have been identified.
E) the analyst would be confident that the supply curve had been identified.
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Chapter 5: Production Theory
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Sample Questions
Q1) The average product of labor is defined as the:
A) change in output divided by the change in labor input usage.
B) change in labor input usage divided by the change in output.
C) output divided by the labor input usage.
D) labor input usage divided by the output level.
E) output divided by the marginal product of labor.
Q2) A straight line drawn from the origin is tangent to a short-run production function with only one input,labor.At the quantity of labor where the tangency occurs:
A) the average product of labor is at a maximum.
B) the marginal product of labor is at a maximum.
C) the marginal product of labor is increasing.
D) the average product of labor is increasing.
E) the total product of labor is at a maximum.
Q3) A production function is a table,a graph,or an equation showing the:
A) least-cost method of producing output.
B) optimal combination of inputs.
C) maximum output that can be achieved from specified levels of inputs.
D) combinations of inputs that can be produced with equal costs.
E) optimal production technology that a firm should employ.
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Page 7
Chapter 6: The Analysis of Costs
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Sample Questions
Q1) When average variable cost is at its minimum:
A) average total cost is increasing with increases in output.
B) average variable cost plus average fixed cost is increasing with increases in output.
C) average total cost is equal to average variable cost.
D) marginal cost is less than average total cost.
E) marginal cost is greater than average total cost.
Q2) Hedge Fun is a landscaping firm that specializes in topiary.It contracts with the owners of 125 local homes and provides its service at an annual fee of $1,300.Its average variable cost is $800,and its annual fixed cost is $28,000.What is the break-even level of output?
A) 125.
B) 87.
C) 63.
D) 56.
E) None of the above.
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Chapter 7: Perfect Competition
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Sample Questions
Q1) If a representative firm with long-run total cost given by TC = 50 + 2q + 2q<sup>2</sup> operates in a competitive industry where the market demand is given by Q<sub>D</sub> = 1,410 - 40P,in the long-run equilibrium there will be:
A) 60 firms.
B) 98 firms.
C) 106 firms.
D) 110 firms.
E) 120 firms.
Q2) A decreasing-cost industry is one in which:
A) input prices fall over time.
B) technology deteriorates over time.
C) input prices and technology do not change over time.
D) firms are in the growth phase of the industry's life cycle.
E) input prices fall or technology improves as firms enter the industry.
Q3) In the model of perfect competition,there:
A) are many firms producing differentiated products.
B) are a few firms producing undifferentiated products.
C) are a few firms producing differentiated products.
D) are many firms producing undifferentiated products.
E) is one firm producing a highly differentiated product.
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Chapter 8: Monopoly and Monopolistic Competition
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Sample Questions
Q1) So long as price exceeds average variable cost,in the model of monopoly,the firm maximizes profits by producing where:
A) the difference between marginal revenue and marginal cost is maximized.
B) marginal revenue equals price.
C) the difference between price and marginal cost is maximized.
D) price equals marginal cost.
E) marginal cost equals marginal revenue.
Q2) Bathworks has exclusive rights to sell its perfumes.The demand for its perfumes faced by Bathworks is given by Q = 250 - 0.5P.Bathworks's costs are given by TC = 50Q + 5.5Q<sup>2</sup>.Its maximum monopoly profit is:
A) $6,750.
B) $7,050.
C) $7,500.
D) $7,750.
E) $8,750.
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10
Chapter 9: Managerial Use of Price Discrimination
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Sample Questions
Q1) The demand for health club services is Q = 100 - 2P,and the marginal cost of providing these services is MC = -110 + 2Q.If a two-part tariff pricing system is used,what is the optimal fixed fee?
A) 1,555.
B) 2,624.
C) 1,024.
D) 1,206.
E) None of the above.
Q2) If a firm supplies separable markets with price elasticities \(\eta\)<sub>1</sub> and \(\eta\)<sub>2</sub>,it should set prices P<sub>1</sub> and P<sub>2</sub> so that:
A) P<sub>1</sub>\(\eta\)<sub>1</sub> = P<sub>2</sub>\(\eta\)<sub>2</sub>.
B) P<sub>1</sub> /\(\eta\)<sub>1</sub> = P<sub>2</sub> /\(\eta\)<sub>2</sub>.
C) P<sub>1</sub>(1 + 1/\(\eta\)<sub>1</sub>) = P<sub>2</sub> (1 + 1/\(\eta\)<sub>2</sub>).
D) P<sub>1</sub>/(1 - 1 /\(\eta\)<sub>1</sub>) = P<sub>2</sub> / (11/\(\eta\)<sub>2</sub>).
E) P<sub>1</sub> = 1 - 1/\(\eta\)<sub>1</sub> and P<sub>2</sub> = 11/\(\eta\)<sub>2</sub>.
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Chapter 10: Bundling and Intrafirm Pricing
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Sample Questions
Q1) The transfer price of an upstream product should always equal the market price when:
A) there is an outside market for the upstream product.
B) the price elasticity of demand for the upstream product is greater than 1 (in absolute value).
C) there is a perfectly competitive market for the downstream product.
D) the marginal cost of the downstream product is greater than 1.
E) the firm is a monopolist in its downstream market.
Q2) If a firm uses optimal transfer pricing between production division A and marketing division B,and a competitive external market for the output of division A exists,then production division A will surely:
A) make positive economic profits.
B) make normal economic profits.
C) sell at marginal costs.
D) sell at the external price.
E) sell at less than the external price.
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12
Chapter 11: Oligopoly
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Sample Questions
Q1) Whopper Stoppers Inc.chooses a price for its sink stoppers,and other firms always charge the same price.Whopper Stoppers Inc.is:
A) colluding.
B) losing money in the long run.
C) threatening competitors.
D) a price leader.
E) preempting the competitors.
Q2) In the United States most cartels were declared illegal by the:
A) Sherman Antitrust Act.
B) Interstate Commerce Commission.
C) Supreme Court.
D) Constitution.
E) Declaration of Independence.
Q3) If duopolists engage in price competition,the result is:
A) always zero profits.
B) always zero profits unless the firms produce differentiated products.
C) always zero profits unless the two goods are perfect substitutes.
D) always zero profits unless the two firms collude.
E) never zero profits.
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Page 13
Chapter 12: Game Theory
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Sample Questions
Q1) Useful strategies to deter entry include:
A) increasing advertising.
B) increasing prices.
C) decreasing capacity.
D) increasing capacity.
E) a and d
Q2) If player 1 has a dominant strategy,then player 2:
A) must also have a dominant strategy.
B) may or may not have a dominant strategy, but will always lead to a Nash equilibrium.
C) may or may not have a dominant strategy.
D) will not be able to reach an optimal solution to the game.
E) will block this dominant strategy and force player 1 to another strategy.
Q3) A Nash equilibrium occurs when:
A) each player has a dominant strategy.
B) each player receives the same final payoff.
C) each player believes it is doing the best it can given the behavior of rivals.
D) there is no dominant strategy for any player.
E) payoffs are independent of the actions taken by rivals.
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14
Chapter 13: Auctions
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Sample Questions
Q1) In an English auction:
A) the dominant strategy is to bid up to your reservation price.
B) the dominant strategy is to bid beyond your reservation price.
C) there is no dominant strategy.
D) the dominant strategy is to bid up to half of your reservation price.
E) the dominant strategy is to maximize expected utility.
Q2) A reverse auction is one in which the:
A) price starts high and then is reduced until only one bidder remains.
B) price starts low and then the seller raises price until only one bidder remains.
C) price starts high and then is reduced until only one seller remains.
D) price starts low and then the buyer raises the price until only one seller remains.
E) bidders submit sealed bids for the right to participate in the auction.
Q3) Which of the following is an example of an ascending-bid auction?
A) Sealed-bid auction.
B) Japanese auction.
C) Dutch auction.
D) Vickrey auction.
E) Rabbit auction.
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Chapter 14: Risk Analysis
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Sample Questions
Q1) A person who is risk-neutral has a utility function (with income on the horizontal axis and utility on the vertical axis)that,as income increases:
A) is horizontal.
B) is vertical.
C) has constant, positive slope.
D) is curved down.
E) is curved up.
Q2) The range of values the standard deviation(s)can take is:
A) - \(\infty\) < \(\sigma\) < \(\infty\) .
B) 0 < \(\sigma\) < \(\infty\) .
C) 0 < \(\sigma\) < 1.
D) 0 < \(\sigma\)< 100.
E) 0 < \(\sigma\) < 1,000.
Q3) A chance fork with payoffs given for each branch is assigned a value based on:
A) the highest-payoff branch.
B) the lowest-payoff branch.
C) an average of the highest- and lowest-payoff branches.
D) an evenly weighted average of all payoff branches.
E) a probability weighted average of all payoff branches.
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Page 16
Chapter 15: Principalagent Issues and Managerial Compensation
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Sample Questions
Q1) In recent years,individuals and state governments have sued various tobacco companies to compensate for illness and injury allegedly caused by cigarette smoking.Courts have awarded millions of dollars to victims in these cases.This product liability law:
A) encourages firms to ignore safety issues when developing products.
B) creates an incentive incompatibility between producers and consumers.
C) encourages incentive compatibility between producers and consumers.
D) is the only way to achieve compatible incentives when consumer safety is at issue.
E) forces firms to declare bankruptcy and to default on bondholders.
Q2) Firms can avoid or limit the asset substitution problem by:
A) funding with equity.
B) establishing a reputation for protecting creditors.
C) insuring bondholders against risk.
D) applying to the government for insurance for bondholders.
E) a, b, and c.
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Chapter 16: Adverse Selection
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Sample Questions
Q1) The signaling model of education would be ineffective if:
A) skills learned in school were useful in employment and could be effectively tested.
B) the costs of acquiring education were equal for individuals of different abilities.
C) individuals could not identify their own abilities.
D) b and c.
E) all of the above.
Q2) Most states require car owners to provide evidence that they have auto insurance when they register their cars and obtain license plates.For the sellers of insurance policies,this may help to limit the severity of the:
A) information asymmetry.
B) moral hazard problem.
C) signaling problem.
D) adverse selection problem.
E) Akerlof problem.
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Chapter 17: Government and Business
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Sample Questions
Q1) Breckner Gas Company faces a demand for their gas given by P = 30 - 0.25Q.It has total costs (exclusive of the required rate of return on its invested capital)of TC = -60 + 8Q + 0.75Q<sup>2</sup>.If the commission that regulates Breckner determines that $100 is sufficient to compensate equity holders for their invested capital,what are the regulated price and output?
A) P = 23.75, Q = 25.
B) P = 25, Q = 20.
C) P = 27.5, Q = 10.
D) P = 22.5, Q = 30.
E) P = 20, Q = 40.
Q2) The major disadvantage of rate regulation of natural monopolies is that:
A) natural monopolists spend too much time lobbying for higher rates.
B) unlike a competitive firm, the natural monopoly has too much incentive to increase efficiency.
C) the regulatory bureaucracy grinds slowly and generates regulatory lags.
D) state public service commissions are poorly staffed and supervised.
E) natural monopolists spend too much money on philanthropic activities.
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Page 19
Chapter 18: Optimization Techniques
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Sample Questions
Q1) You must produce 200 records this week.Using the Lagrangian technique,you determine the profit-maximizing combination of pink vinyl and blue vinyl records and find that the Lagrangian multiplier is $2.50.From this you conclude that:
A) the marginal revenue is about $2.50.
B) the average revenue is about $2.50.
C) the average revenue exceeds average cost by about $2.50.
D) the marginal revenue exceeds marginal cost by about $2.50.
E) consumers prefer pink vinyl to blue vinyl.
Q2) Using the Lagrangian multiplier technique,you allocate your $1,000,000 advertising budget between four media markets so as to maximize your profits.Your assistant informs you that the Lagrangian multiplier is equal to -$0.50.From this you conclude that:
A) you are allocating your budget across markets optimally.
B) advertising is worthless.
C) another dollar of advertising would increase profits $0.50.
D) another dollar of advertising would decrease profits $0.50.
E) you could earn more profit with a larger advertising budget.
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Chapter 19: Appendix Problems
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Sample Questions
Q1) If the annual interest rate is i,the present value of a payment of $X to be received n years from now forever is:
A) $X/(1 + i).
B) $X/i.
C) $X/(1 + i )<sup>n</sup>.
D) $X/i <sup>n</sup>.
E) none of the above.
Q2) You buy your child a $100 savings bond that matures in 10 years and pays an annual interest rate of 10%.At maturity the bond will be worth:
A) $228.17.
B) $200.
C) $259.37.
D) $271.17.
E) $217.71.
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21